The average credit card processing fee ranges between 1.5% and 3.5%. Just where do all these fees come from, and what can a merchant do to minimize them?
Implementing a surcharge program is an effective way to eliminate processing fees. Surcharge programs pass the cost of these fees onto the consumer. They can avoid these fees by paying with cash or debit instead.
Markups (Negotiable)
It's the only area of credit card processing expense that you can negotiate. The processing markup includes the processor's rates, credit card transaction fees, monthly fees, and any fees associated with software, gateways or processing equipment. That is, any fees that the processor can control.
Transaction fees incurred through a payment processor are generally tax-deductible, since they are also considered to be ordinary and necessary expenses directly related to the operation of your business. By deducting transaction fees, you can reduce your taxable income, resulting in tax savings.
The only way to avoid merchant fees altogether is by not accepting credit cards, debit cards, or ACH transitions. This is not an option for the vast majority of businesses in the modern era.
How to Calculate Processing Fees. The formula for calculating processing fees is as follows: (order amount * percentage fee) + (transaction fee * number of transactions).
Credit card surcharging and cash discounting are two options for passing on fees. Adding a surcharge to credit card payments is not legal in every state, but offering a cash discount is. Several credit card processors offer compliant surcharging and cash discounting programs to merchants.
In most U.S. states, adding convenience fees to credit card transactions is legal, but there are still rules businesses must follow when doing so. Learning about the convenience fee rules that affect your area can help ensure you aren't overcharged on your credit card transactions.
Merchant fees are so high because credit card processing companies often inflate their charges. Processors also charge extra fees and unnecessary fees, adding to the total cost of a merchant's monthly statement. For example, let's say a customer buys food at a restaurant using a Visa rewards card.
The average credit card processing fee, which will be taken out of a merchant's sales revenue, is in the range of about 1.5 percent to 3.5 percent. Merchants can negotiate their card processing fees and they are not set in stone.
Credit card processing fees typically cost a business 1.5% to 3.5% of each transaction's total. For example, you'd pay $1.50 to $3.50 in credit card fees for a sale of $100.
The average credit card processing fee per transaction is 1.3% to 3.5%. The fees a company charges will depend on which payment company you choose (American Express, Discover, Mastercard, or Visa), the merchant category code (MCC) and the type of credit card.
Surcharges are legal unless restricted by state law and are limited to 4% of the total transaction. Businesses that add surcharges are required to follow protocols to ensure that consumers are aware of the charges before they pay. The surcharge regulations outlined below only apply within the U.S.
To calculate a 3% processing fee, multiply the total transaction amount by 0.03. For example, if the transaction amount is $100, the processing fee would be $3 (100 x 0.03 = 3).
If you're wondering if it is legal to charge credit card fees, the short answer is yes in most states. The practice of surcharging was largely outlawed for several decades until 2013 when a class action lawsuit permitted merchants in several U.S. states to implement surcharges in their businesses.
The average credit card processing fees vary, depending on the card network and the transaction type. For swiped cards, fees usually range from 1.5% to 2.9%, and for keyed-in transactions, it's about 3.5%.
And while these efforts won't lead to lower credit card fees, small business owners now have the option to offset those fees through surcharging programs. As of this writing, most state laws allow merchants to pass credit card fees to customers.
Is Debit Card Surcharging Legal? For debit cards and prepaid cards, surcharging is prohibited—even when the card is run as a signature-based transaction without the PIN. This restriction was implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The short answer is that merchants are responsible for covering credit card processing fees. However, this does not mean that they can't pass on the cost to their customers. And depending on the pricing model you use with your payment processor, you may not even see the actual processing fees on your statement.
10 states still have laws on the books that say convenience and surcharge fees aren't permissible, but recent court rulings have invalidated some of these laws. To date, only two states and one jurisdiction still outlaw the use of credit card surcharges: Connecticut, Massachusetts, and Puerto Rico.
You can refuse to pay the extra charge and insist on paying the actual amount. Inform the merchant that charging 2% is against RBI rules and they can be penalized. Report the merchant to your bank or card network, providing transaction details and receipts. The bank or card network will investigate and take action.
Effective rates for most merchants should average between 1.70% and 2.1%; depending upon your average ticket, card mix, and monthly volume. If your effective rate exceeds 2% ( or . 02 based on the calculation above) you are likely paying too much!